The striking thing about those who malign the gold standard (this also applies to most of its supporters) is their ignorance of how it really functioned, as revealed by the fact that Britain was not even on a genuine gold standard but on a quasi-gold standard. Before continuing with this line of thought we need to clarify further points regarding Professor Mitchell’s error that classical economists focused on trade deficits with respect to gold drains.
One cannot help but be struck by the professor failure to mention exchange rates or even provide an explanation for gold drains. As the classical economists had determined that the exchange rate, not the trade deficit, was the key indicator with respect to an unhealthy trade deficit and the depreciation of the currency it is necessary to understand how they arrived at this conclusion, a decision that contains important and lasting economic lessons. Continue reading Professor Mitchell, a Modern Monetary Theory exponent, gets the gold standard badly: Part 3
Professor Mitchell tells us that under the gold standard gold was the principle means of making international payments. So when countries developed “trade imbalances” (for which he gave no explanation) gold would have to be shipped from one country to another until the balances were restored. Using Australia and New Zealand as a hypothetical example he argued that if Australian exports to New Zealand exceeded the latter’s exports to Australia “this would necessitate New Zealand shipping gold”.
He follows through with the Hume’s specie-flow theory (the classical theory of gold flows) that the inflow of gold would inflate Australia’s money supply which would drive up prices, making her exports more expensive and hence reversing the gold flow by sucking in more imports. In the meantime, poor old New Zealand’s loss of gold would cause a monetary contraction bringing about a deflation that would cause “rising unemployment and falling output and prices” until her trade balance was restored. Continue reading Professor Mitchell, a Modern Monetary Theory exponent, gets the gold standard badly: Part 2
Bill Mitchell, like the great majority of economists, is an ardent opponent of the gold standard. He is also one of the world’s leading modern monetary theorists and a professor of economics at the University of Newcastle, New South Wales. He wrote an article attacking the gold standard, an article that revealed not only a staggering ignorance of its history but also how it functioned. This response is the first in a series that exposes Professor Mitchell’s errors.
He began his attack with the glaring blunder that the gold standard was in “vogue” in the nineteenth century into the twentieth century, that its acceptance was due to a shortage silver and that “Britain adopted the gold standard in 1844”. After that, his argument continued downhill. Unfortunately, the number of economists who share Professor Mitchell’s ignorance of the history and economics of the gold standard, including those on the right, and what it means for the business cycle is truly disheartening. Continue reading Professor Bill Mitchell, a Modern Monetary Theory exponent, gets the gold standard badly wrong: Part 1
Come 27/7/20I shall post the first of a number of articles dealing with contentious economic issues and theories that have serious political ramifications. What follows will provide readers with a brief introduction to each subject.
Professor Bill Mitchell (University of Newcastle, NSW) is one of the world’s leading proponents of MMT (modern monetary theory). As part of an effort to popularise MMT he posted articles1 that painted a grotesque picture of what is called the classical gold standard. His most egregious error is his assertion that it had a natural tendency to cause depressions. This is utter nonsense. It was deviations from the gold standard that resulted in depressions, not the gold standard itself. It is clear that Professor Mitchell’s ill-founded attack on the gold standard is part of an attempt to justify MMT policies.
My rebuttal of Professor Mitchell’s anti-gold thesis will deal in detail with all of its errors. Unfortunately, he is far from being alone in his ignorance of how the gold standard really functioned. Professor Sinclair Davidson (RMIT) is every bit his equal in that regard. It was he who unequivocally asserted that the gold standard was a bad idea without being able to explain why.2 He also blamed Australia’s sluggish growth rate in the late 1920s on the country’s return to gold. (This stuff is on par with Professor Mitchell’s gold standard nonsense.) Elsewhere, Professor Davidson emphatically stated that Australia’s recovery from the Great Depression was caused by Australia leaving the gold standard in January 1931 which he thinks led to the devaluation of the Australian pound. This is an extraordinary assertion when one considers that the country left the gold standard in December 1929, some 28 months or so before the recovery3. How Professor Davidson was able to confuse the abandoning of gold with the date the exchange rate was revalued is therefore something only he can explain. Continue reading Economic errors and fallacies concerning the gold standard, the Great Depression, Keynesianism, post-Keynesians, MMT, free trade, Austrian economics, immigration
I’ve had several emails regarding unemployment rates during the Roosevelt administration. These readers were confused by some Keynesian sites asserting that the unemployment figures were inflated. One reader wrote that “the unemployment figures must have been greatly exaggerated because they excluded people on relief. If these people had been included then unemployment in 1938 would have been 12.5 percent and not be 19 percent.” I immediately recognised the figures as coming from Michael R. Darby’s 1975 paper1.
There is a sound reason why it is Keynesian votaries that tend to use Darby’s figures while the vast majority of economists and historians stick with the conventional figures. Putting the unemployed on relief and giving them a pay check is called working for the dole. It is an attempt to hide unemployment, not eliminate it. The old statisticians and economists understood that and were scrupulously honest in their estimates. It was called relief because it was understood that this ‘employment’ was a government-funded substitute for real employment. Better to be paid for doing something rather than be paid for doing nothing. Therefore, if these had been real jobs they would not, by definition, have been called relief. Taken to its logical conclusion all a government would have to do to eliminate unemployment is assign the jobless to various activities, no matter how pointless, and classify their dole payments as wages. Continue reading Australia’s recovery from the Great Depression compared with Roosevelt’s sorry unemployment record
Posting will resume next Monday.
The viciously rigged so-called CIA torture report that a vindictive group of Democrats lovingly constructed has been so effectively savaged for its outrageous bigotry, blatant dishonesty and calculated distortions that I didn’t think I could add anything worthwhile to the what the critics were saying, until a reader emailed me a link to Business Insider that had published a report called The CIA’s Post-Torture Problems Have Just Begun. Oddly enough this so-called reporter omitted any reference to the Democrats’ own torture problem: the fact that leading Democrats had been fully informed on the subject and that the Jay Rockefeller went so far as to urge the CIA to be even tougher on terrorists. Yep, it was all the fault of those nasty conservatives.
Continue reading Dianne Feinstein’s so-called torture report and media liars
A Muslim fanatic walked into Sydney café, pulled out a gun and took the customers and staff hostage. Two of the hostages were killed, one while heroically tackling the terrorist, and several wounded. The reaction of the terrorist-sympathising left was to go into protection mode for Muslims. The insufferable Age was able to produce a so-called report on the terrorist without mentioning the relevant fact that he is a Muslim. It did, however, call him a “self-described cleric”.
Now an Age reader would have to determine whether this cleric was a catholic, a Presbyterian, a Buddhist, a Sikh priest or maybe even one of those dastardly fanatical Quakers. Not only that, they would also assume that he was not a real cleric. What the Age did not report is that Manny Conditsis, who was the terrorist’s lawyer, definitely stated that his client “was a cleric in Iran… and that’s been established”. Terrific. A fanatical Iranian cleric was allowed into the country and now two Australians are dead. Only political correctness can explain this insanity. Continue reading Muslim terrorism, the left and the Sydney killings: What is to be done?
My Keynesian critic asserts that the “cut in nominal wages which was one of the reasons we got deflation…” This is nonsense. The deflation was triggered when the London funds started restricting credit in order to build up their reserves. The result was a massive contraction from March 1929 to September 1931 that saw M1 drop by 27.2 per cent and demand deposits by a whopping 33 per cent. This should not even have to be said but the cuts in nominal wages were in response to the deflation and in no way contributed to it. Moreover, it is ludicrous to even suggest that a fall in nominal wages could under any circumstances be deflationary. A deflation is a strictly monetary phenomenon1.
He is right, however, in stating that the appalling increase in the unemployment rate was largely due to the increase in real wages. However, his assertion that as other countries got inflation immediately after they devalued then the devaluation of the Australian pound in January 1931 must also have been followed by inflation is flat out wrong2. A picture, as they say, is worth a thousand words. Although Australia devalued in January 1931 chart 1 shows that retail prices continued their fall from 1929 and did not start rising again until 1934, three years from the devaluation. Continue reading Australia and the Great Depression: recovery was not driven by real wage cuts, devaluation or consumption
This is another response to a Keynesian critic.
My Keynesian critic says I “cannot compare the USA in 1938 and Australia in 1938 apart from both having stimulatory policy”. Well, I can and I did and justifiably so. It’s ludicrous to argue that comparisons are not justified. You also stated that in 1937 America “had the greatest change in fiscal policy under Roosevelt”. Complete baloney – and I have spent considerable time examining the data from official sources. I made my case in my post on the 1937-1938 crash. Prove me wrong and I will cheerfully (well, perhaps not cheerfully) publish it and graciously admit my error.
After that you returned to your GDP mantra even though GDP does not measure growth. In heavens name, how can an economy enjoy economic growth while at the same time consuming its capital? This is akin to a community getting rich by eating its seed corn. I pointed out in my post that it was estimated that net capital consumption dropped by minus 15.2 per cent1. Your response was to completely ignore that fact and keep on stressing Roosevelt’s grossly misleading super-duper GDP record. Continue reading The Great Depression: Australia’s record humiliates Roosevelt and refutes Keynesianism